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Narendra Modi may complain that he has not been afforded the luxury of a honeymoon but the optimism generated by his victory has revived business and investor sentiment--two invaluable building blocks for the PM's promise of delivering growth. If animal spirits are rekindled, can economic recovery be far behind?

Western governments are rushing representatives to India drawn by the prospect of multibillion-dollar deals as the Modi government prepares to open the nascent defence industry to foreign investment, Frank Jack Daniel reports

Senior politicians from France, the United States and Britain arrive in quick succession over the next 10 days as Modi prepares to accelerate the modernisation of the country's mostly Soviet-era weaponry .

Modi intends to build up India's military capabilities and gradually turn the world's largest arms importer into a heavyweight manufacturer a goal that has eluded every prime minister since independence in 1947.

On the table is a proposal circulated within the new government to raise caps on foreign investment with one option to allow complete foreign ownership of some defence projects.

"All the countries are trying to make their case, especially as there is the sense that the Indian market will undergo a shift," said Harsh Pant, professor of international relations at King's College London.

"They get a sense from their dealings that something dramatic is going to happen and they want firstmover advantage," said Pant, who specialises in Indian defence.

First to arrive in New Delhi will be French Foreign Minister Laurent Fabius, whose top priority is to close a stalled deal to sell India 126 Rafale fighter jets, built by Dassault Aviation, for an estimated $15 billion.

Fabius, who arrives on Monday , will meet Modi as well as his most powerful minister, Arun Jaitley , who holds the twin portfolios of defence and finance and can therefore decide both whether to sign the deal and when to release the money .

US Senator John McCain is also due in India next week. McCain, whose Arizona constituency includes weapons makers such as Boeing and Raytheon, told the Senate on Thursday that Washington should seek to bolster India's economic and military rise.

"This is an area where U.S. defence capabilities, technologies, and cooperation especially between our defence industries can benefit India enormously ," McCain said of India's drive to modernise the armed forces.

UK STILL HOPEFUL In the second week of July , Britain is likely to send in Foreign Secretary William Hague and finance minister George Osborne, a British govern ment source said on Friday .

Britain has drawn some cheer from the slow progress of the negotiations for the Rafale deal. The Eurofighter Typhoon was shortlisted along with the Dassault fighter before India announced the French jet was the winner.

Cost escalations and disagreements about building the Rafale in partnership with India's Hindustan Aeronautics Limited have complicated talks with France, and London has never entirely given up hope that it will return to the race.

However, on Thursday , one source at the Indian defence ministry said the deal was likely to be finally closed during Fabius' visit and could be signed this year. A French foreign ministry source said talks were ongoing, but refused to provide more detail. Russia, for years India's top weapons supplier, pipped all three countries to the post, sending Deputy Prime Minister Dmitry Rogozin to visit the new government in Delhi two weeks ago. Washington last year replaced Moscow as India's top defence supplier, according to IHS Jane's.

The Western nations will have noted that India's foreign minister expressed displeasure with Russia's recent offer to sell Mi-35 attack helicopters to India's arch-rival Pakistan.

$6 BILLION SPREE India spent some $6 billion last year on weapons imports. It makes few of its own weapons, beyond ballistic missiles and assembly lines for foreign jets. On Thursday , the government signalled it was in the mood for liberalisation by allowing manufacturers to build more defence components without licences, making it easier for Indian firms to partner foreigners.

At present foreign companies can only invest 26 percent in Indian defence projects without committing to technology transfer, which has put off many investors.

Before the election, sources in Modi's Bharatiya Janata Party said there was a plan to increase the cap to 49 percent.

"For higher-tech intellectual property we would want to go over 50 percent to be in a position to share technology that we have significant investments in," said Phil Shaw, chief executive of Lockheed Martin India Pvt Ltd.

"An uplift from 26 to 49 percent maintains the status quo and may not be sufficient incentive to make an investment here."

Lockheed Martin already has a 26 percent investment in an Indian joint venture with Tata Advanced Systems that manufactures airframe components for the C-130J Super Hercules cargo lifter.

India's Department of Industrial Policy and Promotion has circulated a discussion document that proposes allowing up to 100 percent foreign direct investment, or FDI, in defence production, two government officials told Reuters.

The note suggested allowing 100 percent FDI in manufacturing of state-of-the art equipment, one of the officials said. It also recommends a cap of 49 percent for investments which do not involve transfer technology and a 74 percent ceiling in such cases where the foreign investor is ready to share technology knowhow, the official added.

Last week, Commerce and Industry Minister Nirmala Sitharaman said foreign investment in the sector would help increase defence preparedness of the country and reduce import dependence, saving billions of dollars in foreign exchange.

However, she said the government was yet to take a final call on increasing the FDI ceiling and the decision would be taken by Jaitley and Modi.

The proposals face pockets of resistance in Indian industry , Modi's party and the military establishment.

Modi-led govt will have a more realistic assessment of Cong PM's legacy: Naqvi

PV Narasimha Rao, Prime Minister of India during 19911996, is seeing a revival of sorts in India's public discourse, after hardly finding any mention during 10 years of UPA rule.

On the 93rd birth anniversary of the late Narasimha Rao on Saturday, Telangana chief minister K Chandrashekhar Rao (KCR) called for a Bharat Ratna to be awarded to the former prime minister and said the new state will carve out a district to be named after him.

Andhra Pradesh chief minister Chandrababu Naidu too talked of a fitting memorial for the only Telugu to have become the prime minister. If that wasn't enough, former President A P J Abdul Kalam tweeted, "It is Shri PV Narasimha Rao Ji's birth anniversary today...one of the best PMs India ever had... My respect to the leader."

Sanjaya Baru, ex-media advisor to former prime minister Manmohan Singh, said this surfeit of acclaim for Narasimha Rao is not just an attempt to cock a snook at the Congress, which had consciously kept his tenure as a blind spot in its history, but it is also an imperative for regional forces in Telangana and Andhra Pradesh.

Baru's book -The Accidental Prime Minister -had revealed the animosity between Rao and the Congress high command even at the time of his death and was quoted extensively in election meetings in Telangana and Andhra Pradesh by not just KCR and Naidu, but also Prime Minister Narendra Modi as a sign of Congress high handedness.

"Given that the issue was raised during the campaign, there has to be a follow up," said Baru.

"Rao was the first PM from that region and though he opposed the separate state of Telangana, his humiliation at the hands of Congress was considered a cause to be redressed by these parties," he added. Baru revealed that he had suggested to Manmohan Singh that both Rao and former prime minister Atal Bihari Vajpayee be accorded the Bharat Ratna. "Both Rao and Vajpayee are the two PMs who have defined the new India, Rao by his backing of economic reforms and Vajpayee for the nuclear tests. The PM heard me out but remained silent," he said. While streets in Delhi bear the names o f t h o s e w h o had been ministers in Rao's government, like Rajesh Pilot and Madhav Rao was no memorial Scindhia, there was no memorial to Rao, Baru said.

BJP leader Mukhtar Abbas Naqvi said that Rao's sudden emergence as a cause celebre in the NDA regime despite being a prime minister from the Congress ranks was due to his humiliation by Congress.

"It is well known that his body was not allowed within the AICC when he passed on, despite the fact that he was a Congressman and a former prime minister," he said. "While not going overboard, the NDA government will probably have a more realistic assessment of his legacy," Naqvi added.

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﻿Jun 30 2014 : The Economic Times (Kolkata)

ET Q&A - Tough Decisions Needed to Get Economy Back on Track

VASUNDHARA RAJE CHIEF MINISTER, RAJASTHAN

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Commenting on Modi's views about `bitter pill' to revive the country's economy, Raje says it's needed, but should be done only in consultation with the people

Rajasthan Chief Minister Vasundhara Raje, who won a historic electoral mandate in both the recent Assembly and the Lok Sabha polls, had been often criticized by her political opponents for being "aloof and unaccesible". This time around, may be to pre-empt any such charges, one of the first major initiatives that the Raje-II administration has launched is a `Government at your doorstep' programme which seeks to make the administrative machinery more responsive to people. Speaking to ET's Akshay Deshmane on her hectic tour, Raje discusses her agenda for improving governance, responds to controversies surrounding Union minister and MP from Rajasthan Nihalchand Meghwal, and expresses optimism about the desert state getting what it wants from the Modi administration's forthcoming maiden budget.

You are meeting PM Narendra Modi soon. What are the major issues that you plan to take up with him?

I am meeting him to create a seamless link for co-ordination between the state and the Central governments. In this meeting before the Union budget, we also want to put across Rajasthan's concerns so that they can be taken up in the budget. I am sure the centre will respond positively to our concerns.

You have not spoken regarding the charges against Nihalchand Meghwal--the sole minister from Rajasthan in Centre--ever since his appointment became controversial.

What do you have to say about it?

The law is very clear. If anyone is going to malign his name, he (Meghwal) will take you (the media) to court. It (maligning him) is not justified. You people have a habit of trial by media.

Women's safety and welfare were among the key issues both you and Modi raised during the election campaign... Everything we are talking about here (as part of the governance agenda) begins and ends with women. When we talk about addressing basic issues such as electricity, health, education, employment...they begin and end with women because they (the women) are homemakers and these issues are directly linked with improving the conditions of households.

Do you agree with Modi's view that a "bitter pill" is needed to revive the economy?

Tough decisions need to be taken to get the economy back on track, but only in consultation with the people.

We will do it (implement tough decisions) by taking along the people of Rajasthan.

Rajasthan is being seen as having set an example in economic reforms by taking the first step among all Indian states to amend labour laws. While there has been much praise from policy circles, trade unions have criticised it....

These measures are a way of creating job opportunities. We need to get on to the world stage and make necessary changes to legislation for creating jobs and attracting investment.

Your administration is planning big about renewable energy with new policies being currently drafted for the wind and solar power sectors.

What will be the government's emphasis in drafting the policies?

Non-renewables are going to be the lifeline in the future. The emphasis will be on increasing the MWs made available by amount of electricity production being undertaken currently.

So, there will be improvements in the manner of regulation as well as important policy changes to attract investors (to the sector).

Suddenly, the BJP has stopped talking about Robert Vadra's land deals. Will there be any investigation into his allegedly illegal land deals in Rajasthan?

Everything will happen at the right time.

Jun 30 2014 : The Economic Times (Kolkata)

Much Unrealised Potential in Indo-US Commercial Ties

T.K. ARUN

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At the recent Industry and government interface organised by The Economic Times in collaboration with the American Chamber of Commerce it was clear that both, domestic and foreign industry looks up to the government with expectations and hope

The animated, articulate minister for law, communications and information technology, Ravishankar Prasad, and the stolid, and no less sincere minister for civil aviation, Ashok Gajapati Raju (who read out his speech so as not to suffer any `loss in transmission'), both communicated a picture of an active government eager to give fresh momentum to the economy and willing to listen to industry's concerns while shaping policy.

And he announced that the government had approved the setting up of eight electronic manufacturing clusters. This thrust on manufacturing was reiterated by the national convenor of the BJP's energy cell, Narendra Taneja, in relation to solar panels, and by the national co-convenor of the BJP's information technology cell, Vinit Goenka, in relation to telecom gear.

While India does need to manufacture more, particularly in the technologically advanced sectors, the new government's zeal on this front, reflected by one speaker's assertion that "we will manufacture everything", gives rise to fears of ambition vaulting overboard. And it would have left several representatives of the American companies present in the audience and on the dais bemused, not only because of the implied threat to that age-old institution called international trade that India has practised since the time of the Indus valley civilisation but also because many of them have been breaking their heads trying to obtain policy clarity that would let them carry out manufacturing in this country without hindrance. In addition, American company officials failed to get clarity on whether the new government's definition of indigenous manufacture meant production within India or production by Indian companies.

Ravishankar Prasad declared two strategic goals: build information highways, with broadband reaching every village within three years; and deliver power to every home by 2019, the end of the present government's tenure.

Neither goal is overambitious-in fact, both are within sight. The UPA government had set in motion the work of connecting 250,000 panchayats with fibre optic cable. After having announced the scheme and set up an agency -the Bharat Broadband Corporation -and earmarking the treasure accumulating in the Universal Service Obligation Fund to finance the scheme, the UPA went to sleep, with characteristic disdain for execution. And broadband choked on the inert gases that seem to fill sarkari corporations when no one keeps a watchful eye. Things can change dramatically fast.

In the case of power, 5.9 lakh villages out of India's nearly 6.5 lakh villages had been connected to the grid by the time UPA2 demitted office. This did not fetch them any brownie points because little power flowed through the lines added under the rural electrification programme. Power lines sans power offended the good, practical people of Bihar so much that many of them removed these useless eyesores strung across the landscape and sold the metal for scrap.

Power did not flow through these lines not because there was a paucity of generation capacity. In fact, generation capacity more than doubled from 114,000 MW in 2004 to 230,000 MW when the UPA bowed out. However, anything between 40,000 and 50,000 MW of installed generation capacity lay idle for want of fuel.

Coal shortage saw India import coal to run plants situated at the pithead. Coal imports worth upward of $10 billion widened the current account deficit. India, of course, has the world's fifth largest reserve of coal but mining that is entrusted to an inefficient state monopoly called Coal India Ltd.

The Greek called such combination of the tragic and the comic bathetic. This bit of Greek is one of its many achievements that the UPA failed to take credit for, while it did get the blame for the mess in allocation of captive coal mines. The biggest scam in coal, however, remains the fact that coal still remains underground for the most part even as the country is starved for the fuel and, therefore, of power. Scrapping the Coal Mines Nationalisation Act would be a major challenge for the new government, to remove the coal constraint on the economy.

The discussion on the energy sector mostly skipped coal and focused on solar energy. Kalapana Jain of Deloitte made a brave attempt to focus attention on the need to tap coal, India's most significant fuel, in more imaginative ways, such as coal gasification. The Americans, in fact, lead the world in developing and running integrated combined cycle plants using gas made from coal as the fuel. These achieve thermal efficiencies upwards of 60%, nearly double the level at old plants run by state electricity boards. Technology up gradation can help India generate double the power it generates today with the same amount of coal.

The American companies present also offer smart grids. The trouble with Indian grids is not so much technical losses, which smart technology can contain, as insufficient capacity and patronage of widespread theft. Of course, technology can help detect where all the power is being stolen, but here, the principal challenge is to muster the political will to stop theft. If that is summoned, deploying technology would not be a problem.

Fortunately, Gujarat has shown to other states that it is possible to stop theft of power and rather than lose political support by ending this source of patronage, actually gain support for providing power round the clock to households, while a separate feeder line supplies power to rural pump sets for a limited period and at a subsidised rate.

Demand side management is another area where US firms have crucial technology. Ingersoll Rand, which left its road-roller days behind to focus on things like energy management and security, offers smart technology to conserve power within buildings by turning off lights and air conditioning in those parts where sensors detect no human presence.

But, of course, the biggest saving in energy would come from smart urban planning. If new cities were to allow mixed land use and residential areas come up next to commercial areas, people could walk to work, instead of spending long hours in polluting, life-withering traffic jams while commuting to work and back.

Planning cities well, with public transport and mobility of the citizen being paramount, would lead to huge savings in energy.

The new government's plan to set up new cities from scratch offers scope to deploy smart design, planning and technology across the board.

Inter-city connectivity is another challenge that was discussed at the conference. Civil aviation assumes huge importance in this regard. The civil aviation secretary Ashok Lavasa displayed cogent awareness of the challenges facing the sector. Resolving them, however, depends on the political skills of his minister. For a majority of the sector's challenges stem from other ministries and the states.

India has a growing fleet of passenger and cargo aircraft. All of them require regular maintenance, repair and overhaul (MRO). This is a huge business opportunity that India has handed over to Singapore and Dubai, thanks to a set of policies -tax and customs, chiefly -that make it impossible to do this in India.

The ministry of finance has to take these problems on board and solve them, to create thousands of high-value jobs in the country.

Treating an MRO facility as being outside the domestic tariff area for the purposes of customs duties would appear to be one solution which would take care of temporary import of high-value equipment that would later be reexported after use.

India needs new low-cost airports and regional airlines.

Variable state level taxes and policies hinder aviation. These have to be sorted out at the state level. We wish the earnest Mr Raju all success in this delicate mission of getting chief ministers to see sense.

Another task in civil aviation is to make better use of helicopters.

The Americans would love to see India use far greater use of this mode of civil and combat aviation, because of firms like Sikorsky, which offer a full range of these whirlybirds.

For a whole range of American companies in the technology sector, the main challenge is growth of telecom and broadband, aside from the quixotic tax policy that had troubled them for some time but now seems to be a thing of the past. But then, many Indians do believe in ghosts and ghouls wafting in from the past to haunt the present as well. We hope the tax department is beyond such silly superstition.

Availability of spectrum at a reasonable price and at predictable intervals is the single most significant challenge before the telecom industry. The government appears to be serious about releasing spectrum currently hoarded by Doordarshan and defence, to make continuous bands available for industry. And, increasingly, the government is prepared to allow spectrum sharing and trading with minimal restrictions.

A company like IBM, which makes high-end computers with artificial intelligence that can beat world chess champions, also plays a big role in managing the telecom industry's infrastructure.

This is why their country CEO Vanitha Narayan was present, to convey their keenness to see the telecom sector grow in India.

In defence, American companies have many concerns.

The main one is the seeming reluctance of Indian industry to envisage majority foreign ownership in joint ventures. This newspaper's editorial stance has been that FDI up to 100% in defence related production is welcome, as domestic manufacture is far superior to constant import, fetching India the dubious distinction of being the world's largest arms importer.

Only in areas of critical proprietary technology -where sharing information or external dependence might be a source of extreme vulnerability -should there be any restriction on external investment.

The experience with limiting foreign ownership in a sector like telecom has been that it only serves to help some Indians gain while acting as holders of economic interest of foreign capital suppliers who keep their investment below the stipulated limit but have effective strategic and economic control in the operation. This hardly makes sense.

Another area of concern is offsets. India has an offsets policy that requires 30% of the value of defence imports to be spent in India as investment, procurement, research and development, etc.

The last three letters spell trouble.

The rules for offsets are so vague that American and other foreign suppliers of defence equipment find it impossible to meet their offset obligations. These need to be streamlined, and services made eligible for offsets.

Overall, the same set of issues that trouble Indian industry -ease of doing business, slow, opaque functioning of the government machinery, difficulties in releasing land for industry, unstable tax policies -confront American industry as well.

American companies have a constraint that Indian companies are cheerfully free from: they cannot stray from the path of rectitude while negotiating India's regulatory and administrative landscape.

Domestic and foreign industries look up to the government with huge expectations. It is up to the government to deliver.

--Editor-Opinion, The Economic Times

Jun 30 2014 : The Economic Times (Kolkata)

No Honeymoon for Modi But Hedge Funds, FIIs Woo India through QIPs

ARUN KUMAR & BAIJU KALESH

NEW DELHI|MUMBAI

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Four cos raise .

`11,142 crore in the past 30 days, more than the total amount raised in FY13 or FY14

Prime Minister Narendra Modi may have complained last week about his government not having the privilege of a honeymoon period in the first 30 days. But that hasn't stopped overseas hedge funds and longer-term capital investors such as Capital International, Schroders Capital and Wellington Capital from romancing India through qualified institutional placements or QIPs, especially in the month since Modi has taken over.

Two financial service providers and two mobile telephony companies raised roughly .

`11,142 crore in the past 30 days through this avenue, more than what was raised in either of the past two fiscal years. Investors are looking upon India with increased favour, thanks to a stable government at the Centre, the expectation of a reform programme aimed at reviving growth, belief that the Indian markets have bottomed out and a revival in global markets.

Investment bankers expect another $5 billion to be raised through QIPs. Along with public offers and sales of stakes in public sector companies, total funds raised could be anywhere between $10 billion and $12 billion this fiscal, according to half a dozen investment bankers.

"Companies are raising equity money either to de-leverage or expand businesses, create a corpus for acquisitions or for shoring up cash for overseas purchases,'' said S Ramesh, executive director, Kotak Mahindra Investment Banking. "A buoyant capital market enables them to time their fund raising to almost perfection.'' QIPs help companies raise money faster than through other avenues. Also, investors can buy large chunks of shares at a fair value through this avenue. A direct

share purchase of heavy volumes from the stock market will lead to a jump in stock prices.

"The QIP programme has risen in the past few months as markets open up with a stable government, betterment of fiscal numbers and hope of reforms pushing the companies to accelerate on growth rather than consolidate,'' said Sanjeev Jha, head of capital markets, Bank of America Merrill Lynch, one of the largest arrangers for the Idea QIP. A top banker at a foreign investment bank told ET: "In India, promoters are always reluctant to sell assets even to meet lenders' demands. With the rejuvenated interest of overseas long funds for Indian stock, cash-hungry Indian promoters are rushing to raise funds through the QIP route." India's largest airport developer GMR Group and power to road developer Jaypee

Group will soon launch placements to raise roughly .

`4,500 crore. Both groups have been raising money by selling core and non-core assets as part of efforts to pare debt.

Local and overseas investors have been rushing to get a piece of the action. Demand for India's third largest mobile telephony Idea Cellular was .

`9,000 crore against a target of .

`3,000 crore, while rival Reliance Communications received interest for .

`4,800 crore against a target of .

`3,000 crore. Idea raised money to buy spectrum, while RCom did so to trim debt.

The profile of investors purchasing these shares has also switched from just hedge funds who take a short-term call to longterm investors such as Capital International Group, Wellington Capital and Schroders Capital. The latter take a view of five to 10 years, similar to pension and sovereign funds.

" We think a lot more opportunities would be flowing into India from an investing point of view," Mark Mobius of Franklin Templeton told ET in May. "One is going to see big growth in stock market investing and foreign direct investments into India." Kotak's Ramesh, whose firm raised money for both microfinance lender SKS Finance and gold mortgager Muthoot Finance, said, "Most of the recent QIP offerings in this fiscal have seen investment by long-only institutional funds of high quality. This reinforces the long-term India story and also their conviction of making returns over a long term.'' He expects Indian companies and the government to raise roughly .

`60,000 crore this fiscal year ending March.

Bankers say power, airport and road developers are set to raise money through QIPs followed by metal and mining companies, apart from the government as part of its asset-sale programme.

"First to kick off the fund raising will be companies which build power plants, airports, roads and ports, followed by public sector banks, and later metal and mining companies,'' said Jha of BAML.

"Disinvestment of government stakes in public sector units could also make up the pipeline.''

Jun 30 2014 : The Economic Times (Kolkata)

GOVERNANCE - Minimum Government = Maximum Governance?

Samuel Paul

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It is necessary to examine whether PM Modi's slogan "minimum government, maximum governance" is a serious goal. It is reasonable to assume minimum government refers to the need to limit the size of government.

Maximum governance, while more difficult to fathom, could signal a focus on governance and accountability .

If, on the other hand, it implies that shrinking the size of government itself will automatically lead to better governance, there is a problem.

Is the size of India's government so big that it needs to be shrunk? A widely-accepted measure of government size is the ratio of public expenditure to GDP . By this measure, the developed countries of Europe and North America lead in terms of government size, with several exceeding 50% public expenditure as a proportion of GDP . In fact, Scandinavian countries, which are welfare states, often seen as models of good governance, have expenditure-GDP ratios close to 60%.

Asian countries, including Japan, have much smaller governments. Japan (42%), China (24%), India (27%), Brazil (39%) and South Korea (30%) illustrate this. Judged by this ratio, India's government size has hardly doubled over the last 50 years while its GDP at constant prices has grown 15-fold.

One factor that explains the gap between Europe and Asia or Latin America is the sizeable welfare payments that increase public expenditure in the former. Social safety nets are far more limited in Asian countries. Data shows that countries vary wide ly in terms of government size, and developing countries tend to have much smaller governments than ad vanced countries. Several studies of government size have shown an in verse relationship between size and economic growth in the developed countries. While there is no consen sus this reflects a causal link, there are exceptions to this finding. Scandi navian governments have continued to expand their size in the last decade, while achieving GDP growth that ex ceeds the growth rates of other coun tries with smaller governments.

The US government has grown in size throughout the 20th century and . yet its professionalism and growth re cord are not in dispute. But when co untries expand the scope of their gov ernments over a long period and res pond to pressures from special intere st groups to expand even further with out contributing much to public well being, waste and inefficiency occur.

But there are doubts on the extent to which the inverse relationship betwe en government size and economic gro wth applies to developing countries.

These countries have a shorter histo ry, invariably starting with limited government functions and budgets. India's state governments too have grown in size. Over time, more public services will be planned for, and investment in infrastructure will be made, enabling higher growth rates and public welfare. The slow progress of publicprivate partnerships in India shows it will not be easy to attract the private sector to invest in very-long-term and high-risk sectors and areas. Governments will have to be the prime investor here. So, we find government size growing in developing countries.

Under these conditions, across-theboard shrinking of government may be counterproductive. Instead, modernising administrative systems and practices will certainly make government functioning more efficient and responsive. Size can be reduced also by getting other agents to provide public services. Banks and mobile companies can perform cash transfers or other financial services. Citizen centres run by private entrepreneurs can provide e-governance services and reduce the burden on governments.

But for these initiatives to work, governments need to be smart, design efficient systems and monitor agents' performance. The focus should be on improving the functioning of government, not on its size.

Smart governments and careful monitoring and assessment of important categories of public expenditure should be the strategy to make government efficient and effective. Government size may grow for other reasons such as expanding the reach of essential services or infrastructure.

With a tweeting Prime Minister at the helm, smart, not minimum, government should signal the way forward.

Co-authored with Kala S Sridhar . The writers are with the Public Affairs Centre.